Digging Deeper into the Bakken: The Three Forks Oil Formation

Nov 07, 2013 (ACCESSWIRE via COMTEX) -- One year ago, I wrote this story, asking—could the Bakken ever hit 1 million barrels of oil per day (bopd) production?

Well, now the Market is asking—when (not if) will it hit 2 million?

A massive, 76-page report from Goldman Sachs from late September suggests 2023—that's another TEN YEARS of growth—with the biggest growth year being next year, in 2014.

In fact, they say the worst case scenario for the Bakken is now 1.3 million in 2017. One million? Pfffftttt...yesterday's news.

A smaller examination from Credit Suisse in early October suggests the same thing. Analysts from these investment giants went to the Bakken to find out firsthand whether this prime play has peaked.

And the two groups independently returned with the same answer: no.

Two factors will continue to drive Bakken production growth for at least another decade: tighter well spacing and production from deeper zones. There's enough life in these drivers that Goldman's analysts started off their Big Report by stating they "believe production from the Bakken horizontal oil shale play in North Dakota and Montana can continue to grow substantially."

If deeper zones and tighter well spacing were not spurring resource expansion, Bakken oil production would plateau at 1.3 million bpd in 2017. That would mean the Bakken only offered a few more years of growth, and at a much slower pace than we have seen to date.

Instead, Goldman expects the Bakken to peak at 2 million bpd and not until 2023. To get there, they figure production growth will average 130,000-210,000 bopd a year, well above the 110,000 bopd increase that we saw in the first half of this year.

First, the play has been de-risked and its areal extent defined. Bakken operators now known where and what the Bakken is.

However, they are still figuring out how well spacing and drilling depths impact everything, like how much oil they can pull from the formation.

At first, producers drilled Bakken wells on 640-acre spacing, one per square mile. Then they moved with good success to 320-acre spacing. With shale formations, the worry is that wells drilled too close together tap into the same oil and limit each other's productivity. (The industry says that wells are communicating.) However, this year operators started to test 160-acre spacing - and met with great success in some areas.

Not every part of the Bakken will be able to support 160-acre well spacing, but the analysts at Goldman figure 20% of the Bakken can handle it. They also think downspacing, as it is known, will get seriously underway in the next six months because lots of Bakken E&Ps are testing tighter spacings now.

Second, Goldman sees production rising as producers tap into deeper reserves. The Bakken is a layer cake, with five oil-bearing layers amongst nine total layers. The top two oily layers, the Middle Bakken and Three Forks 1, currently account for most of the Bakken's production.

Underneath these layers lie three more oil-bearing shale formations, known as Three Forks 2, 3, and 4. So far wells drilled into these deeper layers have been mostly exploratory, but there have been some successes, especially from Three Forks 2. This bodes well for at least some deeper Bakken production.

On top of all that potential for production growth, the Bakken is also becoming more efficient. Better geologic understanding and more experienced drillers mean well costs and timelines are both coming down.

Slow output growth in H1 2013 but different drivers to come

Bakken production growth did slow notably in the first half of 2013—Goldman says that was due to weather issues, and the timing of bringing pads online.

As the Bakken matures more operators are shifting to multi-well pads, which take longer to establish but are more efficient in the long run. This transition really hit in H1 '13, which means the slowdown in output growth was really just a delay.

As all those multi-well pads come online, all that delayed output will boost Bakken production once again - with the biggest boost coming next year, when the guys at Goldman expect Bakken oil production to climb 212,000 bpd. After that they foresee output growth of 165,000 bpd in 2015 and 115,000 bpd on average in 2016-2018.

Efficiency, not rig count, is what matters

Production growth in the Bakken is still happening, despite fewer wells being drilled. Rig counts are used to measure how busy a play is and a declining number added to concerns the Bakken boom was ending.

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